The Hundred Million Dollar Garage

Posted by Tom Lindmark on November 16th, 2008

I’ll get off this kick I’m on about the cities lining up for federal help but bear with me for just one more post. Let’s take a quick look at one example of how local governments have landed themselves in this mess.

City North is a sprawling retail, office, residential housing development on the north side of Phoenix. The development was highly sought after by the city of Phoenix which found itself in a battle to land the project with its neighboring city of Scottsdale. Both cities had the requisite vacant land and as luck would have it, the land that each had available abutted the border of the two cities.

Now Scottsdale is an upscale and pretty small community when compared to Phoenix but its name has a lot of cache. The two things it lacks is the tax base of Phoenix and a compliant citizenry. Being much smaller and largely populated by an educated upper class, the political machine knows only too well that it is under a microscope, particularly so when spending big sums of money is involved.

The developers of City North read the tea leaves quite well and played the cities off against each other. Phoenix with more money and more political latitude of action won the project. How? The city agreed to rebate half of all sales tax revenues generated at City North for the next 11 years to the developers of the project. Those rebates are projected to come in at right around $97.4 million.

Supposedly Arizona law forbids this type of giveaway unless there is a quid pro quo. I won’t bore you with the constitutional and statutory minutiae so trust me, that Phoenix had to make it look like they got something for this. What did they get? Parking spaces. That’s right for about $100 million, the developer agreed to build a parking garage that would be city owned. Now anyone can park there and there is no parking fee revenue but the city does own the garage.

So now we have the spectacle of Phoenix getting in line for federal assistance at the same time that money is flowing into the city and back out to private interests. And you wonder why this gets under my skin?